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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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The Best SLA I’ve Seen In A While

Comments (20)

My first company, Feld Technologies, didn’t have contracts. Instead, we had a one page PSA (professional services agreement) that spelled out in English that we charged $X per hour, would do our best, and our invoices were due upon receipt.  We never had a single legal issue with a client, although we had a number of tense moments which we almost always solved successful by “doing our best.”  There were a few cases where this wasn’t enough and our clients effectively fired us, but we always made it easy for them to walk away if they weren’t happy.

Since I started investing in 1994, I’ve been on the giving and receiving end of an endless number of contracts which often include SLA’s.  I’ve seen every type of agreement you could imagine and at this point have become completely numb to the dance of a buyer and a seller of any type of product or service trying to get to a legal contract.  As I’m sure many of you have experienced, the business terms are simple to work out, especially between rational people that want to work together.  But once things get into “legal” or “procurement”, it’s a whole different issue.

The other day, I was on an email thread between Gnip and a new customer.  Gnip recently launched v2.0 of their service and it rocks.  They’ve held off on adding new customers for the past few months as they relaunched their service and are now starting to add new customers at a steady clip.  In the email thread, they quickly agreed on pricing with the customer who then asked “what’s your SLA.”  Eric Marcoullier, Gnip’s CEO, responded with the following:

Our SLA is fairly simple (and I’m happy to write it up for you in more official language):

  • We can’t control data publishers’ availability, but if they’re up, we’ll get the data.
  • Machines and clouds fail, even on EC2.  If Amazon is up, we’ll get the data. 
  • The best way to guard against machine failure is duplicate hardware.  We offer highly discounted backup boxes.
  • You’ll always have my cell phone number — if our software breaks, you can call me 24/7 and I’ll get my team on it.
  • If we aren’t living up to our end of the relationship, you can cancel the contract with no penalty.

The customer’s response was “You are class act!  I wish all legal issues can be handled like this.”

Now, Gnip is young so Eric is in a position where he can still talk to any customer that wants to talk directly to him.  However, as they grow, I expect this tone will exist throughout the business since it’s Eric’s style.  Basically, keep it simple, be clear about what you will do, be available, and take responsibility for your service.  I’m sure more formal contracts will find their way into the business but wouldn’t the world be a better place if more business was conducted this way?

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  • Phil Sugar

    "If we aren’t living up to our end of the relationship, you can cancel the contract with no penalty"

    This is exactly what we have in our contract. I go on and on and on with lawyers on this.

    I want you to guarantee five nines!!

    Or what?

    What do you mean or what?

    Or what? Do you want my first born, Do you want to tattoo something on my forehead? Do you want the keys to my business?

    What is the ultimate penalty? Fire me.

  • http://intensedebate.com/people/john_minnih5395 John Minnihan

    You've summarized the value of a straight-forward SLA nicely; I've nothing to add to that.

    I do, however, want to chime in about Eric: couldn't agree more. I've had the pleasure of getting to know Eric recently & I can assert that he really *is* that transparent in all of his dealings, and I'm excited to see the recent changes at Gnip.

  • http://twitter.com/ovijacob @ovijacob

    with apologies to my lawyer friends, this is how I like to handle contracts. simple, clear, no tieups. thanks -great post

  • http://www.joaobelo.co.uk Joao Belo

    There's no reason why business wouldn't be conducted in this way, but too often people find complexity a sheltered place to be.

  • Harriet Pea

    WONDERFUL! I have been in technology services for years and most SLA's distance the customer rather than add to the relationship. This simply says, "We are in it together." What a concept!

  • http://twitter.com/derekscruggs Derek Scruggs

    I’m all for simplicity, but I wonder if the reason he can get away with this is that his clientele is web 2.0 companies? Ever try getting one of these by a bank? A health care provider? Brutal.

    • Phil Sugar

      I have….the key is the remedy stage. If you are willing to say you can fire me, most lawyers will eventually agree what worse could you do….our language:

      c. Termination for Convenience. Either party may terminate this Agreement for any reason upon ninety (90) days’ written notice. Within the first ninety (90) days of the effective date of this agreement subscriber may cancel with written notice without further obligation for service fees.

      Now then many company's/vc's don't want to do this because you can't play revenue recognition games like booking a three year contract and recognizing all of the gross margin in the first quarter….

      But if you put this in there is no wiggle room and the accountants know it….you can't forward book any revenue.

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  • http://www.facebook.com/oelsner Ben Oelsner

    I'm one of those lawyers who is asked to draft SLAs all of the time. I love Eric's solution and I think it works well for Gnip's particular service. However, SLAs are usually inserted into contracts because the customer requests one, not because the service provider offers it up. That's the scenario set forth in Brad's post. Unfortunately most of the customers of my clients wouldn't agree to Eric's SLA. That rejection could come from the customer's lawyers, but, in my experience, most requests for SLAs come from the business folks because it's their butts on the line if they pay for a service that doesn't work as promised. Most SLAs are crap because nobody ever keeps track of the metrics used to measure the service anyway. They're just words on paper that make people feel good. What I applaud about the story is the fact that both of the parties agreed on a simple common sense solution that's works well for them. I wish that happened more often.

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  • http://twitter.com/aumg @aumg

    Brad – love your blog, been reading for a while now, so please keep posting. I love this post – I wish legal issues could be handled this simply, it would greatly reduce my legal bills. Interestingly enough, a friend of mine recently had a similar "issue" where a customer wanted a detailed SLA for a free service he created, and he responded with this: http://zeek.com/twext-me-terms-of-service/. It's almost as if my friend Jeff and Eric may have been separated at birth!

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